Author Topic: Is it normal for your very first investment to be so scary?  (Read 1694 times)

MrOnyx

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Hi all,

I made my very first investment the other night. This was after a few months of reading MMM, learning and preparation done in the hopes that I might to some extent know what I'm doing when I get to this point.

But when I opened up a Lifetime ISA (UK), and dropped £500 in it, I suddenly felt very anxious. Even more so when I went to use this to buy some shares in an index fund. I filled with dread and fear of the unknown and, frankly, it almost paralysed me into forgetting the whole thing and submitting to a life of toil and work (i.e. the Easy Way Out).

The bit that got me is that even after all this time preparing, I was still bamboozled by new terminology that I was trying to educate myself on beforehand. What is Historical Yield and why does it appear to be so low that it's almost suggesting that an investment here won't even keep up with inflation? Dividends - where do they come from? I already knew about dividends, but it's as though my mind has gone blank. I guess I'll find out when my first dividend comes in and gets added to the ever-appreciating value of my stocks, right? That's how compounding works, I'm sure.

I think it's fear of the unknown. I know that now I am going to be checking my investments daily. Half out of interest and half because like a newborn baby, I just need to check on it.

The fact that I won't see that £500 again until I either buy a home or turn 60... it feels cold! (Even though I know that deep down, by the time I see that £500 again, like a baby it will have grown considerably)

nereo

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Re: Is it normal for your very first investment to be so scary?
« Reply #1 on: May 10, 2018, 04:42:26 AM »
  • read this: http://jlcollinsnh.com/stock-series/
  • Stop checking your balance daily.  Don't check it weekly or monthly either.
  • Realize that you (and your actions) are the biggest threat to your investments.  Buy and Hold
  • Automate. Have contributions go into your account every pay period and remember #2.

To answer a few of your specific questions:
Historical yield is the average amount a stock or index pays out in dividends each year as a percentage of the total share price.  It is in addition to gains from the increase in the stock price.

A dividend are shares that a company gives to its investors in exchange for buying and holding their stock.  Normally they are given out quarterly, but a company can also issue a special dividend (like a surprise) anytime it likes.  The yield tells you how many shares you will get on average from a dividend per year.  So a 2% dividend will give out 2 shares for every 100 shares you own, usually quarterly (so 0.5 shares per hundred per quarter).  You can get very small fractions of a share.

Since companies announce their dividends as a fixed dollar amount per share (e.g. $0.37 per share) the yield will be inversely affected by the share price.  For example, if a company payed out $0.50 per share every quarter and its share price was $100 per share, its yield would be 2% ($0.50 of $100 = 0.5%, and 4x/year = 2%).  If that company had blockbuster earnings and the share price went up to $200 per share the yield would now be 1%.  That company can either keep a lower yield or increase its dividend to try to (roughly) keep its yield fairly constant.  What they decide to do is generally a function of how much free cash they have on hand at the end of each quarter and whether they have a better use for it, like R&D or buying up a competitor. Investors like seeing dividends that hold steady or increase slowly, as its one (imperfect) metric that the company is generating cash every quarter.  But, be aware that for every $ a company pays out in dividends, it is worth a dollar less, so its really a zero sum game.

If you are investing in broad market index funds you can ignore yields all together, because the yield on an index fund is the average paid out by the dozens or hundreds of companies represented in that index.

If you reinvest your dividends (highly recommended in the accumulation phase) you will own more shares over time.  Compounding, however, is not just about dividends.  It also includes increases in the share price.  In the short term (a few years to a decade or so) increases in share price typically make up most of your gains.  Over the very long term (several decades) the impact of dividends becomes pronounced, and over a human lifetime most of the gains in the market can be attributed to the dividends.  That's just how the math works; the dividends themselves compound each year.

I hoep that settles you down.  You are overthinking this, and worrying far to much. 
No, it is not normal to be this scared.  A little scared yes, but you need to relax.
« Last Edit: May 10, 2018, 04:53:38 AM by nereo »

MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #2 on: May 10, 2018, 04:54:39 AM »
Thanks, I knew for the most part it was me overthinking it.

Those four points at the start really hit home. I'm taking this on board.

Yeah, my dividends are set to automatically reinvest. I just need to figure out how to set my account up to automatically buy index shares when my monthly money goes in, then just fire and forget.

I think I needed that. Thanks again.

nereo

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Re: Is it normal for your very first investment to be so scary?
« Reply #3 on: May 10, 2018, 05:02:49 AM »
Thanks, I knew for the most part it was me overthinking it.

Those four points at the start really hit home. I'm taking this on board.

Yeah, my dividends are set to automatically reinvest. I just need to figure out how to set my account up to automatically buy index shares when my monthly money goes in, then just fire and forget.

I think I needed that. Thanks again.

Glad I could help
Your broker (e.g. Vanguard, Fidelity, etc) should have an option on their website for automatic investing.  Typically you can set the frequency (e.g. Daily, weekly, monthly, quarterly) and the amount.

I'm less knowledgeable about UK retirement accounts, but in the US you set up automatic investments into your company-sponsored retirement account (e.g. 401(k) or 403(b)) by talking to your HR person at work and filling out a one-page document.

g'luck, and post again anytime you get antsy. 

Gone Fishing

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Re: Is it normal for your very first investment to be so scary?
« Reply #4 on: May 10, 2018, 05:24:16 AM »
My first investments were made right before the Trade Tower attacks.  I watched my (very) hard earned money dwindle to half.  It's rare, but it does happen.  The proper response is to buy more when stocks are on "sale" (offer).  Go ahead and condition yourself to think this way.  During the accumulation phase, you want to buy investments as cheaply as possible.  Declines hurt your balance in the short term but give you the opportunity to scoop up shares at a reduced price.  Think this way long enough, and you'll be rooting for a dip in the market!

nereo

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Re: Is it normal for your very first investment to be so scary?
« Reply #5 on: May 10, 2018, 05:32:20 AM »
My first investments were made right before the Trade Tower attacks.  I watched my (very) hard earned money dwindle to half.  It's rare, but it does happen.  The proper response is to buy more when stocks are on "sale" (offer).  Go ahead and condition yourself to think this way.  During the accumulation phase, you want to buy investments as cheaply as possible.  Declines hurt your balance in the short term but give you the opportunity to scoop up shares at a reduced price.  Think this way long enough, and you'll be rooting for a dip in the market!
Good advice. 
A bit unorthodox, but in my index funds I try to concentrate on # of shares owned more than share price.  The share price will mostly go up, but sometimes it will go down (on sale!).  # of shares should only increase.  If you are worried about paper loses, its helpful to step back and say "hey, i own more shares than I did before (because of dividends reinvested + contributions)... now its just a matter of time before the price goes back up"
It's all behavioral, but it helped me when I started out many moons ago.

MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #6 on: May 10, 2018, 05:34:54 AM »
My first investments were made right before the Trade Tower attacks.  I watched my (very) hard earned money dwindle to half.  It's rare, but it does happen.  The proper response is to buy more when stocks are on "sale" (offer).  Go ahead and condition yourself to think this way.  During the accumulation phase, you want to buy investments as cheaply as possible.  Declines hurt your balance in the short term but give you the opportunity to scoop up shares at a reduced price.  Think this way long enough, and you'll be rooting for a dip in the market!

We can never predict these things. That's why it's irrational to worry about them. That's what you're both basically telling me, of course.

Having read MMM's article about why we should cheer when the market crashes, I already see the opportunity to be had when such an event occurs. Given that the last great dip happened ten years ago now, we're about due another big crash. It'll probably be blamed on/coincide with Brexit or something like that (at least from a UK-centric point of view), but that's beside the point.

In a twisted way, I'm looking forward to the next big crash. Not because I want to see people be forced to tighten their belts, but because I look forward to buying shares at reduced prices and plunging my average costs. Which means really... there's absolutely nothing to worry about. We're all on the right path and it's only going to get better.

Freedomin5

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Re: Is it normal for your very first investment to be so scary?
« Reply #7 on: May 10, 2018, 06:48:33 AM »
Yes, I felt the same way two years ago when I purchased my first index ETF. It promptly fell in value the day after I purchased it (by $0.01). Ride it out. Donít sell. And after a while things will calm down and you will feel comfortable with it all. In a year, youíll be back here comforting an investment newbie, just like an investment old timer.

RangerOne

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Re: Is it normal for your very first investment to be so scary?
« Reply #8 on: May 10, 2018, 08:00:27 AM »
Second the jlcollins piece on stocks. If you feel fear you are worried about the wrong outcome.

Are you afraid your $500 worth of stock will lose value one day? This is not a reasonable fear. We know for a fact any investment account will suffer numerous crashes in value over a few decades.

You should not be at all afraid of this because the value of that account is irrelavent. It is the start of a perminent nest egg which if left to grow and taken from sparingly far in the future will never go away.

The only thing you have to fear is a long term financial appocolypse. In that unlikely scenario the only things worth any money will likely be guns, fuel and food. So...


MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #9 on: May 10, 2018, 08:11:33 AM »
Second the jlcollins piece on stocks. If you feel fear you are worried about the wrong outcome.

Are you afraid your $500 worth of stock will lose value one day? This is not a reasonable fear. We know for a fact any investment account will suffer numerous crashes in value over a few decades.

You should not be at all afraid of this because the value of that account is irrelavent. It is the start of a perminent nest egg which if left to grow and taken from sparingly far in the future will never go away.

The only thing you have to fear is a long term financial appocolypse. In that unlikely scenario the only things worth any money will likely be guns, fuel and food. So...

I can assure you my fear was irrational. It's the same trepidation one might fear before their first plane journey, or any first time experience for that matter. There was no base here - it was just 'oh this is new, I just dropped £500 into something totally new to me'.

I can see that now even if I couldn't then. The kind (and stern) words from people who have responded since have actually evaporated my fear. I'm not worried anymore, I'm just going to keep going.

Yes, I felt the same way two years ago when I purchased my first index ETF. It promptly fell in value the day after I purchased it (by $0.01). Ride it out. Donít sell. And after a while things will calm down and you will feel comfortable with it all. In a year, youíll be back here comforting an investment newbie, just like an investment old timer.

Thanks, sagely Freedom. I had my arse kicked here*, and it set me straight. When I'm experienced enough to do so, I'm happy to provide that ass-kickin to someone else.

*in a good way which I'm thankful for.

ketchup

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Re: Is it normal for your very first investment to be so scary?
« Reply #10 on: May 10, 2018, 08:21:29 AM »
  • Stop checking your balance daily.  Don't check it weekly or monthly either.
  • Realize that you (and your actions) are the biggest threat to your investments.  Buy and Hold
Both of these, x1000.  I don't remember the study, but the people who do the best in the market are dead people, closely followed by people that forgot they had their money invested.

Some of my coworkers were crying about their 401ks going down a couple months ago and it was news to me.  The right-now balance of my portfolio is not all that important.  I might "lose" 4-5 figures in a dip, but there's no sense worrying about it, as there's literally nothing I can do to make it better.  Stay the course.
« Last Edit: May 10, 2018, 08:23:31 AM by ketchup »

KTG

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Re: Is it normal for your very first investment to be so scary?
« Reply #11 on: May 10, 2018, 08:23:22 AM »
Its guys like nereo that keep me coming back to MMM. Without a place for me to get schooled I am not sure where I would be. Well, I would be where I was before MMM, essentially treading water.

Keep up the good work, peeps.

I don't remember the study, but the people who do the best in the market are dead people, closely followed by people that forgot they had their money invested.

Fidelity. They evaluated the best performing accounts of their customers and discovered that.

Also, this is pretty powerful:

https://www.cnbc.com/2018/05/07/warren-buffett-10000-invested-in-an-index-fund-when-i-bought-my-first-stock-in-1942-would-be-worth-51-million-today.html

And I have a hard time with this too, as evident of my venting on this site. But the proof is out there.
« Last Edit: May 10, 2018, 08:31:45 AM by KTG »

nereo

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Re: Is it normal for your very first investment to be so scary?
« Reply #12 on: May 10, 2018, 08:31:25 AM »
Its guys like nereo that keep me coming back to MMM. Without a place for me to get schooled I am not sure where I would be. Well, I would be where I was before MMM, essentially treading water.

Keep up the good work, peeps.
aw, thanks @KTG!  I'm having a pretty crappy day where my code is just not working, so that picked my spirits up.

@MrOnyx - I didn't intend for my words to be stern, I just wanted to stress those four key points for a new investor. Following those points should ease your anxiety considerably.

KTG

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Re: Is it normal for your very first investment to be so scary?
« Reply #13 on: May 10, 2018, 08:33:13 AM »
aw, thanks @KTG!  I'm having a pretty crappy day where my code is just not working, so that picked my spirits up.

I'm a coder too. Take a break and get out of the weeds. I usually go for a walk and somehow does it not only clear my head, but I discover the solution.

And I find listening to metal helps, believe it or not.

Maenad

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Re: Is it normal for your very first investment to be so scary?
« Reply #14 on: May 10, 2018, 08:42:15 AM »
My therapist recommended something he calls "box breathing" when my anxiety gets to me. I'm not anxious about investing, but this may help others in the future, so here you go.

It's pretty simple - inhale for a count of 4, hold your inhale for a count of 4, exhale for a count of 4, hold the exhale for a count of 4. Repeat until your brain calms down. It's kind of like meditation. :-)



MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #15 on: May 10, 2018, 08:44:36 AM »
@nereo - it's cool. Stern is the way I perceived it from the perspective of someone who needed to come back down to earth, and it's exactly what I needed. You were right in the regard of easing my anxiety - it's genuinely as though you got through to me and my mind has been perfectly still since.

I don't remember the study, but the people who do the best in the market are dead people, closely followed by people that forgot they had their money invested.

Fidelity. They evaluated the best performing accounts of their customers and discovered that.

Wow. Just wow. Let's hope we can all overcome the nerves that come when the next great wave hits. Godspeed, all!

My therapist recommended something he calls "box breathing" when my anxiety gets to me. I'm not anxious about investing, but this may help others in the future, so here you go.

It's pretty simple - inhale for a count of 4, hold your inhale for a count of 4, exhale for a count of 4, hold the exhale for a count of 4. Repeat until your brain calms down. It's kind of like meditation. :-)




I've heard of this technique before. Perhaps it's worth practicing now and again, when I notice things starting to creep into my train of thought when they shouldn't be.

ysette9

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Is it normal for your very first investment to be so scary?
« Reply #16 on: May 10, 2018, 10:05:23 AM »
My sister has expressed to me several times that her risk tolerance is somewhere between all bonds and stick everything under the mattress. Yet, her rational side recognizes that this is not a winning investment strategy, so she has a significant amount of her portfolio in equities as she is young. Her solution is to decide on her asset allocation, choose low-cost passive index funds, and then stop looking. She almost never looks at balances and doesn’t open her paper statements that come in the mail.

During the 2007-2008 rollercoaster I employed a similar technique. I saw that things kept going down and decided that investing was still the right thing to do, I was young so I wouldn’t need that money for a long time anyway, and just stopped looking. When I came up for air again a couple of years later things had improved tremendously. I am SO GRATEFUL to my younger self for having stayed the course and invested early on. I am in an awesome position now because of it.
« Last Edit: May 10, 2018, 10:09:02 AM by ysette9 »

MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #17 on: May 11, 2018, 05:09:11 AM »
I am in an awesome position now because of it.

And you are an awesome - or Badass - individual for riding the storm and holding your nerve! Congrats! Sounds like a good strat. This weekend, I'm doing it. I'm automating everything and setting it up such that I need never look at it again. Other than maybe to begin figuring out projections later down the line.

ender

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Re: Is it normal for your very first investment to be so scary?
« Reply #18 on: May 11, 2018, 06:23:58 AM »
When I first started investing, I was much more "oh my gosh money! risk!" but over time, that obsession went down.

Now, I rarely pay attention even though my numbers are much much larger - earlier in the year when the market dropped 10%ish I only found out because I saw it on these forums. Five years ago I would have known immediately.

Setting up automatic withdrawals too helps significantly with this sort of thing. I don't hardy make a "decision" to invest, my decision was setting up the auto withdrawals and now I don't even pay attention.


ysette9

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Re: Is it normal for your very first investment to be so scary?
« Reply #19 on: May 11, 2018, 10:20:41 AM »
Investing, once you’ve done the homework and made sure you are in the right funds, is one of those weird things where ignoring and doing nothing is actually the best path to take.

hadabeardonce

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Re: Is it normal for your very first investment to be so scary?
« Reply #20 on: May 11, 2018, 11:29:31 AM »
Is it normal for your very first investment to be so scary?
Yes.

desert_phoenix

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Re: Is it normal for your very first investment to be so scary?
« Reply #21 on: May 11, 2018, 09:21:31 PM »
This thread makes me wonder, is there a way to turn off getting emails about my brokerage transaction confirmation being ready on Vanguard's site?  It tempts me to check it every two weeks when I have my auto-investment happen.

MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #22 on: May 14, 2018, 01:59:39 AM »
This thread makes me wonder, is there a way to turn off getting emails about my brokerage transaction confirmation being ready on Vanguard's site?  It tempts me to check it every two weeks when I have my auto-investment happen.

My only two guesses would be to check if there's an unsubscribe link at the bottom of these emails, and to look in your account preferences on Vanguard's login portal.

Failing that, have a look at the email address that's sending you these emails. If it's a very specific email that is used to send only this specific email every two weeks, you can safely add it to your spam filter so that it arrives in your junk box instead. If it's used for other emails as well - especially important ones rather than unnecessary information, see if you can type an exact phrase into your spam filter that would match this email's subject line and nothing else. Theoretically it shouldn't come to this, though, because I would imagine that you can just turn them off once you log into Vanguard.

PDXTabs

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Re: Is it normal for your very first investment to be so scary?
« Reply #23 on: May 14, 2018, 09:11:19 AM »
  • read this: http://jlcollinsnh.com/stock-series/
  • Stop checking your balance daily.  Don't check it weekly or monthly either.
  • Realize that you (and your actions) are the biggest threat to your investments.  Buy and Hold
  • Automate. Have contributions go into your account every pay period and remember #2.

This! Especially #1 and #4. I try to check all of my account balances once per month. I'm completely used to my investment account moving up or down by $10K, and I'm mentally prepared for it to drop in half, because that's when you get the good deals (I lived through this once in 2008 and regret not buying more).

MrOnyx

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Re: Is it normal for your very first investment to be so scary?
« Reply #24 on: May 14, 2018, 09:24:36 AM »
  • read this: http://jlcollinsnh.com/stock-series/
  • Stop checking your balance daily.  Don't check it weekly or monthly either.
  • Realize that you (and your actions) are the biggest threat to your investments.  Buy and Hold
  • Automate. Have contributions go into your account every pay period and remember #2.

This! Especially #1 and #4. I try to check all of my account balances once per month. I'm completely used to my investment account moving up or down by $10K, and I'm mentally prepared for it to drop in half, because that's when you get the good deals (I lived through this once in 2008 and regret not buying more).

I have no idea how I'd react to seeing my account fluctuate by that much, so I intend to try my hardest not to let curiosity get the better of me.

Right NOW I feel pretty secure in the knowledge that a recession is a good thing for an investor. I even feel pretty optimistic about the idea - especially when I think about how we're basically due one at this point. I seem to recall a MMM article way back in 2011-12 that wrote of how the signs are pointing towards the conditions being ripe for another storm.

HOWEVER when one actually hits... it will probably be a different ball game. That's why I'll proooobably not look. I'll wait for the recovery then see if I can find a graph that shows how my savings fluctuated during it, after the fact (while looking at how great my portfolio is now that I chose NOT to sell!) just out of interest. That's also arguably not necessary, of course.